Alan Greenspan, the former Fed Chair, speaking on Wednesday on Bloomberg Television said “there are two bubbles: We have a stock market bubble, and we have a bond market bubble”.
This at a time when US stock indexes remain near record highs and as the yields on government notes and bonds hover not far from historic lows.
As the Fed continues to tighten monetary policy, interest rates are expected to move up in coming years.
At the end of the day, the bond market bubble will eventually be the critical issue, but for the short term it’s not too bad
But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.
What’s behind the bubble? Well the fact, that, essentially, we’re beginning to run an ever-larger government deficit.
Greenspan said. As a share of GDP, “debt has been rising very significantly” and “we’re just not paying enough attention to that.”
“Irrational exuberance” is back!
